Facing the public

Jack Ma could have tried to deal with matters behind closed doors. But in February, Alibaba Group’s founder chose to tell the world about the scandal rocking his company: An internal investigation found that about 100 salespeople for Alibaba.com, the flagship platform, were cheating thousands of foreign merchants, helping to create more than 2,300 fake storefronts on the website.

Fraud among suppliers is nothing new in China. And the financial damage – US$1.7 million – is relatively small by corporate standards. Even so, Alibaba’s managers came out strong with an attack plan to deal with the scandal, announcing that a criminal investigation was already underway and that Ma had accepted the resignations of Alibaba.com COO Elvis Lee and CEO David Wei, even though neither were charged with any wrongdoing.

The message from the management of China’s most famous internet startup was clear: It had to take responsibility and protect the company’s reputation.

“I love Jack Ma even more after this crisis. The fact that he came out and embraced this issue, and actually offered to the public that ‘We have this information, we know about this problem and are addressing it’ – it takes courage and I think people trust the company even more now,” said Debby Cheung, group managing director of Ogilvy Public Relations in China. “It’s very unusual for a local CEO to take this approach, and I hope he sets a standard to follow.”

In times of crisis, a brand’s reputation is only as resilient as its leaders. And as more domestic firms grow up and look to global markets, some Chinese businesses are starting to make a bigger effort to win public trust with better crisis management strategies. It’s a far cry from many other companies’ approaches – where silence has been seen as the easiest way out.

Controlling the messageCheung said that for some other local firms, public relations is more about using government guanxi to suppress press reports. Another route is to simply do nothing and wait for the media spotlight to hone in on a new scandal.

One of the worst examples of crisis management was seen with New Huadu International Group, where the company’s CEO, Tang Jun, was accused of faking his California Institute of Technology PhD. His initial response was a long period of silence.

“When Tang finally did come out to say something, he was trying to defend himself. He explained that his degree came from Pacific Western University and that it was not forged,” Cheung said. “This was all handled quite badly. Newspapers were saying, ‘don’t lie to us.’ It became an issue where people wondered, can we really still trust this company?”

The news that Tang had faked his academic credentials became a matter of public anger largely because of his continued refusal to own up to the fact.

In times of crisis, acting quickly and being the first to tell a story is crucial, said Bill Adams, associate director of Eastwei MSL, a PR agency in China. Any delay could be interpreted by the public as an effort to hide or a struggle to come up with excuses.

“Leadership is obviously always important, but it’s maybe even more important during a crisis when critical decisions have to be made and managers must communicate effectively,” Adams said.

That seemed to be the chosen path for Ma and Alibaba. By disclosing the scandal to the public first – as opposed to being exposed by another party – and planning what to say and how to say it, the company controlled its message and preempted negative criticism. As a result, the time frame in which Alibaba’s crisis made waves on the internet and in the public sphere was relatively short.

More pressureMeanwhile, the advent of social media has increased both risks and rewards in terms of how companies approach crisis management.

Online micro-blogs like Sina Weibo and Twitter have added a degree of openness, as consumers can communicate their affection or unhappiness about brands 24 hours a day. It has also provided businesses with a platform to disseminate their own corporate messages.

Take Beijing Huaqi (Aigo) Information Digital Technology, for example. When the consumer electronics giant was accused by one of its suppliers on Weibo of owing a large sum of money, the company’s CEO, Feng Jun, responded directly. In his Weibo post – which is accessible to all internet users – he apologized immediately, admitting he had not heard about the issue but would look into it.

Such instances, where an executive shows regret and humility in response to a mistake, resonates with consumers. People can connect to a personal emotion much more easily than an official company statement.

“Because [Feng Jun] was able to act quickly and respond to the complaint, people were impressed,” Cheung said. “How CEOs respond and behave is very important in China. Many Chinese look up to leaders, whether it’s the government or an organization.”

Companies all around the world are working out the opportunities and challenges of using social media, but the issues may be even more pronounced in China. The country’s internet users are among the most active in the world, Adams said.

“Internet-based communications, with the absence of responsible editing, mean that every rumor or conspiracy theory – true or untrue – is instantly magnified, amplified and distributed at the speed of light,” said Jeffrey Gandz, a professor at the Richard Ivey School of Business, in an email interview. “It becomes almost impossible for companies or even governments to address these multiple information channels and, in any case, corporate communications have less credibility than those that appear to be from fellow consumers or friends.”

Furthermore, as a growing number of domestic firms are looking to go public and develop their brands globally, many are feeling pressure to meet international transparency standards. This has led some Chinese firms to boost their PR departments – something that has been helped by the maturation of China’s PR talent over the last two decades.

“If you look around at the leading Chinese companies and ask who their PR leaders are, more and more they are individuals with very long and deep experience,” Adams said. “They’re former leaders of international PR agencies who have moved to companies’ in-house departments.”

At the same time, crisis management isn’t just about how to respond. It also requires prevention strategies – especially in China, where businesses often come under suspicion.

“Problems of corruption and fraud are spread throughout the economy. It doesn’t matter if it’s in goods or services – the same risks arise,” said Peter Humphrey, founder and managing director of ChinaWhys, a risk management consultancy.

“Every business should have certain operational controls and procedures in order to spot quickly any side of something strange going on in their business – and then nip it in the bud.”

SIGN UP FOR THE NEWSLETTER

Email *

Yes, I would like to receive emails from China Economic Review. (You can unsubscribe anytime)

Constant Contact Use.

By submitting this form, you are consenting to receive marketing emails from: China Economic Review, Rm 1804, New Victory House, Sheung Wan, http://www.chinaeconomicreview.com. You can revoke your consent to receive emails at any time by using the SafeUnsubscribe® link, found at the bottom of every email. Emails are serviced by Constant Contact

About China Economic Review

China Economic Review (CER) has been a dependably independent voice on trends and developments in the greater Chinese economy for a quarter century. Our coverage has won recognition from the Society of Publishers in Asia and is widely read by economists, business leaders, academics and students with an interest in one of the world’s most vibrant and complex developing markets.